GlobalFoundries Reportedly Eyeing A Public Listing With $30 Billion Valuation

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New York-based semiconductor manufacturer GlobalFoundries Inc is interested in an initial public offering (IPO) for selling its shares to retail investors. The company is working with investment bank Morgan Stanley to reach a deal that will see GlobalFoundries valued at $30 billion once it publicly lists its shares, according to reporting by Bloomberg. However, the publication cites a single source familiar with the matter, and it cautions that the talks between the company and the investment bank are far from conclusive.

GlobalFoundries' Public Listing Will Bring Another U.S. Chipmaker To The Stock Market

Whispers of the firm's intent to go public have been making rounds since earlier this year, and Bloomberg's report is rare public reporting on the matter. Few details have been provided in today's report, with representatives from GlobalFoundries declining to comment and Morgan Stanley stating that it does not have prepared comments on the matter.

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Demand for semiconductors is at an all-time high due to the changed work, entertainment and educational requirements caused by the ongoing pandemic. This has driven up the demand for consumer electronics, but while generally chips for these are manufactured on advanced chip processes such as 14nm and below, chipmakers such as the Taiwan Semiconductor Manufacturing Company (TSMC) have reported that the market for mature processes such as the 28nm node is also witnessing a supply shortfall.

GlobalFoundries does not manufacture semiconductors on leading-edge process nodes such as 5nm, 7nm or 10nm. However, it does make chips with feature sizes as small as 12nm, ensuring that for the time being, it's ahead of China's Semiconductor Manufacturing International Corporation (SMIC). Additionally, while rival companies such as TSMC and Samsung Electronics' semiconductor arm Samsung Foundry use the latest chipmaking machines, GlobalFoundries is yet to incorporate them in its facilities.

A laser hitting a tin drop inside ASML's TWINSCAN NXE:3400 to generate Extreme Ultraviolet (EUV) light inside the machine's light source. These machines are used to 'print' chips and cost close to $120 million apiece. Image: ASML

This decision is not surprising as the newer machines, which use ultraviolet light with a smaller wavelength, are generally used to manufacture semiconductors starting from the 7nm process node and below. While GlobalFoundries does not manufacture 7nm chips, it did have plans for this node but canceled them in 2018.

While the reasons behind the decision were not provided at the time, a lack of customers for the 7nm node was widely believed to have factored in the decision. Chip fabrication requires substantive investment, and customers often work with fabricators in this arena. This ensures that the latter has a sound return on their investment and the former can control their semiconductor supplies.

Santa Clara, California-based chip designer Advnced Micro Devices, Inc (AMD), one of GlobalFoundries' biggest customers, changed its chip agreement earlier this month. Through a filing with the Securities and Exchange Commission, AMD announced that it would remove the 'exclusivity clause' from its contract with the chipmaker. This, in effect, will ensure that AMD will be able to source its chips from other suppliers should it choose to do so. In addition, the chip designer also agreed to tighter payment conditions, as it greed to prepay GlobalFoundries for some of its orders.

Should GlobalFoundries decide to go public, it will have to convince investors about the demand for mature process nodes and its plans to develop the latest technologies. The current chip fabrication landscape has three major players, with U.S. chip giant Intel Corporation joining TSMC and Samsung, capable of manufacturing the latest products. GlobalFoundries' entry in this arena will require substantial investment, and funds generated through an IPO might end up serving this purpose.

The author has no position in any of the stocks mentioned. NewAgeAds LLC has a disclosure and ethics policy.
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